The Workability of Pike Balancing for Sales and Use Tax Collection Obligations

Hayes Holderness
Assistant Professor
University of Richmond School of Law

As covered in earlier posts (here, here, here, and here), the Supreme Court is currently considering the case of South Dakota v. Wayfair Inc., which calls into question the physical presence rule for sales and use tax collection obligations. This rule holds that a state cannot require a person to collect the state’s sales and use taxes unless that person has a physical presence in the state; the rule was justified as a way to prevent undue burdens on interstate commerce. On March 28th, Wayfair filed its brief with the Court laying out its argument for retaining the physical presence rule.

The arguments in Wayfair’s brief are mostly expected: that state and local sales and use tax systems are still too complex and varying to expand taxing authority to remote vendors, that the dollars at stake are relatively small and declining, and that the physical presence rule benefits small vendors who would otherwise be unable to meaningfully engage in interstate commerce. However, one section of Wayfair’s brief addresses the argument of many amici that the balancing test from Pike v. Bruce Church, Inc., 397 U.S. 137 (1970), should replace the physical presence rule going forward. (Surly Blogger Adam Thimmesch has been at the forefront of these arguments.) Wayfair pulls no punches—it argues that Pike balancing would be “fundamentally unworkable for addressing the burdens of state sales tax collection,” i.e., that it would be unable to prevent undue burdens on interstate commerce in this context.

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